If we assume that staff are dishonest why do we employ them AND let them loose on our customers?
This note was circulated by the finance admin team of a university:
Subject: POLITE REMINDER re Out of Pocket Expense Claim Forms
A polite reminder if we may……
It is not best practice to present your out of pocket claims with the receipts stapled on or stuck to the back of your form I’m afraid.
Please consider the volume of claims that are processed daily here and in central finance and that all receipts must be passed through a scanner for recording purposes.
We kindly request that when submitting your expense claims you stick or sellotape your receipts to additional/separate piece(s) of paper so that all items are visible at a glance.
Many thanks in advance for your co-operation, any queries please get back to us.
Now, before we become too judgemental about this we should recognise two things. First, the intent of the sender is sound, it is to increase the efficiency with which expenses claims are processed. Second, this pursuit of efficiency is entirely legitimate. All organisations need to be efficient in their administration, and organisations largely funded from the ‘public purse’ need to be able to demonstrate that they are good custodians of that funding. They need to be able to stand up to public scrutiny, but they also need to think things through……..
Rather than ranting I thought it might be helpful to model the current practice and suggested practice for both the claimant and the finance administrator and to consider the implications of the ‘best practice’ (as I have understood it).
The questions I think are:
Is the current practice sound? Is the ‘best practice’ better? Are either of them particularly best?
My analysis follows………….
To explain, and looking at the slightly daunting picture:
The columns headed ‘by’ contain a short description of the process steps and who carries them out,
e.g. “Arrange Receipts” is a process step completed by an ‘Academic’.
The column headed ‘per claim’ and ‘per receipt’ contain estimates of the amount of time (in minutes) the step might take for:
each receipt within the claim
A claim is considered likely to consist of:
one claim form, completion of which will take a ‘fixed’ (volume independent) per claim,
a number of receipts per claim (with time variable according to the volume of receipts associated with each claim);
In the next column (No. Receipts) number of such receipts is estimated (I settled on 10 because it seemed reasonable):
2 = a bus ticket or taxi receipt from home to and from the station
1 = plus a return train ticket
2 = a bus or taxi receipt from station to destination (and back)
1 = a hotel bill for 2 nights
2 = meal bills
2 = coffee/refreshments
The column headed freq/ann (12) is based on an assumption that nobody is likely to submit a claim more than once per month.
The resulting number of minutes is multiplied by the number of academic staff in this ‘average’ University. (I settled on 3000, covering a decent sized university with about 15000 students.)
The total number of minutes (363000 on the first line) is then converted into hours, days and finally full time equivalents. Dividing the number of days work in total by the number of working days in a year of 261 (take 52 * 2 day weekends away from 365!)
I have completed this analysis for each step both of the original process and for the proposed process – as I have interpreted them from the email. For complete transparency I took the view that the cost of paper, staples, sellotape, capital and operating costs of the machines involved would be marginal and ignored them!
Feel free to argue, but I think the numbers are good enough for this purpose!
So, I have considered what the original process could be, estimated (and yes I do have training in both industrial process and clerical work measurement!) the time for each step in the process multiplied that by the frequency with which the task is carried out (monthly) and the number of people carrying out the task and separated the activity between that carried out by academic staff:
average annual cost including all facility and on-costs an arbitrary £40k – probably a bit on the low side
and that carried out by finance admin staff:
average annual cost including all facility and on-costs an arbitrary £25k – again probably a bit on the low side.
In summary, the original process per claim takes 65 minutes of which the academic takes 29 minutes and the finance administrator 36. That works out to an equivalent of 16.83 staff and a cost of £522,988! Some savings on THAT will be well worth having.
I then calculated the reworked process to understand the benefit to the university of adopting ‘best practice’.
The good news is that the finance admin team do indeed save 1 minute per claim. Sadly, the academic staff workload is increased from 29 to 53 minutes per claim (an increase of 24 minutes). The new combined workload is the equivalent of 23.48 staff.
In a fine example of ‘Hutbers Law’ (see Beckford, 2016), far from going down, the cost increases by some £268K. The revised, improved process is about 50% more expensive than the inefficient old one because it both increases the workload AND imposes that increase on the more expensive members of staff!
So, in answering the three questions:
Is the current practice sound? No
Is the ‘best practice’ better? No, it is worse!
Are either of them particularly best? No!
I then took this further to consider a further question:
Is either process (whether ‘improved’ or not) the best way to protect the public purse, or might there be a significantly different and better way of going about the whole thing?
That led me to consider whether the public purse is in fact being protected by the process – or is it being abused? Let me explain…
The time spent completing the expenses claim (time has cost remember!) is time that the claimant is not using to fulfil their duties (whether academic or not) – but it is time that ‘belongs’ to the beneficiaries of the University operation – students, research clients, government. Is accounting for (relatively) minor sums of expenditure the best way of obtaining value for money?
That leads to the issue of trust – we trust the staff to teach the students and, other than the examination system which purports to test whether they have learned what the academics think they should have learned, we have no ‘process’ that truly establishes whether or not the student has ‘added value’ to themselves while at University. At £9k per undergrad and often more than that at postgrad we (and they) are taking a lot on trust – and not unreasonably so? But we don’t trust the academics with expenses………..
Now, let us make some more assumptions.
First the graduate premium (the difference in lifetime earning between graduates and non-graduates) is currently estimated at £200k (£252k for men, £168k for women – I feel another paper coming on! See reference)
Our university has, another assumption, 15000 students
Each of whom will have a working of life of, a third assumption, 25 years (it’s probably nearer 40!)
£200k/25 = £8k per annum
That is, in a REALLY REALLY rough form the value of the work of the academic PER STUDENT!
if each student meets, a further assumption, 10 academics in the year then the ‘value per academic’ is £800 but we must multiply that by the number of students the academic teaches. Another assumption – let us say 50 students in any year, 50 * £800 = £42000.
The average academic generates slightly more value than his or her cost BEFORE taking account of research activity!
Now, back to the expenses claim. I have to make a further assumption about the size of expenses claims! I shall draw on my own experience here. Assuming one trip as described above of an average distance by train, with a hotel room for two nights, evening meals and general subsistence, I am going to guess an average expenses claim of £350 per month per academic. It will of course vary widely from this, conferences and overseas trips will be much more, local ‘events’ representing the University much less. It will do for now and, conveniently, that works out to £4200 per annum (one tenth of the value added and, roughly, one tenth of the cost of the academic).
Arbitrary numbers all!
A better ‘best practice’?
How about this for an idea? All expenses claims are subject to a set of well-defined and publicised rules about what can be claimed, by whom and under what circumstances. There may be scope for discretion in the odd case but 99% should fall within the rules. So, why don’t we TRUST the claimants to claim what the rules allow, automatically pay any claim that appears conformant to the rules but require the academic to keep the receipts (for seven years?) and carry out an audit of an appropriate number of claims each year to determine whether the rules are being followed (probably)! We can ask one of our academic statisticians to tell us how big the sample should be – they will have time to do that if they are not sticking and scanning receipts…..
We might be taking a little risk, but the benefits are greater. An estimated workload reduction of about 75% = £380k for current practice or £600k against the supposed ‘best practice’ will be substantial both in cash terms AND in the morale of the staff….
And yes, for the accountants amongst my readers I AM making the assumption that most people, in most circumstances are fundamentally honest and will work within the rules. I am ALSO making the assumption that professional accountants will be smart enough to establish a robust enough audit process to be confident that those cheating will get found out (and thereby you have a cost-effective process for protecting the public purse AND maximizing the value provided by the most expensive assets of the University).
Think on this
But, and, however…. If we believe the various estimates in this article are even approximately right (and the essential argument has a lot of head room for differences in accuracy!) then we TRUST our academics to deliver value to students broadly equivalent to their cost, but we DON’T TRUST them to be honest about expenses amounting to 10% of those costs – to such an extent that we are prepared to spend around £790k per annum checking up on them.
THAT is the equivalent of 18 academics who could all be adding £42k of value to 50 students each instead of filling in a claim form and sticking receipts to a page for scanning.
So much for protection of the public purse!
Beckford, J., 2016, The Intelligent Organisation, Routledge, Oxford, UK